A short term investment in nickel will make sense as countries around the world particularly in the West move to enact trade sanctions against Russia. The referendum vote in Crimea overseen by Russia will formalize the process of annexation of the territory by Russia.
The United States and Europe have pretty much forsworn military involvement in the ongoing dispute between Ukraine and Russia over the issue of Crimea. The only alternative will be political and economic measures against Russian aggression.
Economic measures will include lists of sanctions that will steadily be escalated against Russia. It is likely this will eventually impact the trade in commodities given Russian dependence on them in its balance of trade earnings.
The impact of this can best be explained if an investor looks at the role Russia plays in the production of nickel in the world market.
Russia traditionally was the second largest producer of nickel in the world. China was the number one producer followed by Japan, Canada and Australia respectively. This was the situation in 2010.
Nickel Mine
In recent years nickel production has shifted somewhat with Russia becoming the 3rd largest producer in the world followed by the Philippines and Indonesia basically tied for the first position at 440,000 metric tons each.
Russian production was 269,000 metric tons in 2010. In 2011 it had declined to 267,000. Further reductions came in 2012 and 2013 with 255,000 and 250,000 metric tons produced respectively.
Production in Australia in 2013 was 240,000 metric tons followed by Canada coming in with 225,000 metric tons.
Nickel Mining In New Caledonia
The next tier of countries have much lower capacities and therefore have less impact on supply and demand in world markets for nickel. These include in order of production Brazil which is steadily increasing its output. In 2013 it had reached 149,000 metric tons. Just below Brazil is New Caledonia at 145,000. It is a special case given that it is an considered to be an overseas territory of France.
China comes next with 2013 levels of production at 95,000 metric tons followed by Colombia at 75,000.
The remaining world producers of nickel are Cuba, South Africa, Madagascar and the Dominican Republic at 66, 48, 26, and 12.5 metric tons respectively.
Nickel prices as expected, are increasing as manufacturers and traders fear an interruption in exports from Russia. This explains the increase in the world price for the metal reaching $7.14 USD per pound as of Friday March 14, 2014. The increase for the day alone was 4%. At the beginning of the week nickel was still selling below $6.90 a pound.
Nickel World Production
Historically, nickel has moved in price from above $8.00 USD in 1989 to below $2.00 USD at the end of 1993. By 2004 it had reached above $7.00 again. In the volatile years of 2006, 2007 and 2008 nickel prices soared to above $22.00 USD.
Prices for the metal began a rapid descent at the end of 2008. By 2009 prices were below $6.00 USD per pound once again. From that time to the beginning of 2014 prices have fluctuated from 4 to 13 dollars. At the beginning of 2014 nickel sold for about $6.00 dollars USD.
As can be seen from the wide fluctuations in price over time one must be responsive to world news. Any investor in nickel and commodities in general needs to be able to move quickly to respond to changes in market conditions.
I would suggest investing in nickel in the short term because if the supply of nickel from Russia is halted by Western sanctions there will be attempts by other countries to make up the shortfall especially if prices are rising.
Of course, this makes the assumption that Russia will continue with its aggressive stance in Crimea and the Ukraine which is probable. If Russia moves to absorb even more of the Ukraine the likelihood of additional steps against Russian production of commodities will increase.
Nickel Used In Machinery Parts
If there develops an actual shooting war between the Ukraine and Russia which can easily happen given the tension between the two nations expect a spike in a number of commodities. This would include energy, precious metals like gold and silver and a number of industrial metals which would of course include nickel.
It is important to note that as the metal is used in currency when prices rise there is a point where hoarding may result. For example, the American nickel comprising 75% copper and 25% nickel. The price of the metal is 88.10% of its .05 USD face value. If the price would increase dramatically it would create a shortage of the coin as speculators and everyday consumers would begin to collect it.
Nickel Coins
The historic illustration of this is what happened to the American penny. Comprising 95% copper by 1982 the coin was worth 194.65% above the face value of .01 USD. That forced a change in its metal composition to 97.5% in zinc and becoming just plated with copper that same year.
Expect a similar situation with the currencies of other nations that employ nickel in the manufacture of their currency.